1. The future of export led growth: is the financial crisis revealing its limits?: Latin America and the Caribbean Jorge Máttar Director a. i. ECLAC México Carnegie Endowment for International Peace 29 June 2009

2. 1. Background: from import substitution to export promotion. 2. Trade and output perfomance. 3. Impact of the international crisis in LAC. 4. Final remarks and perspectives. Contents

3. Story line Mid 80s. LAC changes its development model. Privatisation, deregulation, more market and less State, liberalisation, openness of the economy, end of ISI. New model relies on the market, private sector. Xs accelerate, but Q does not respond as fast. Why? Absence of industrial, competitiveness policies, too much trust in the market, abandonment of role of state. X are de-linked from rest of the economy, especially in CA and México (maquiila, tourism, financial services). In South America, exports are mainly primary goods, capital intensive and with little multiplying effects. Thus, external insertion patterns in LAC are not the same: SA, RNALYc, Caribbean; commodities, maquila, new services, tourism, financial services. CA-RD-MX more vulnerable (markets, product mix). Vs Chile, Bra, Arg. The future: diversification of markets and product mix; strengthen integration, domestic markets, linkages of X with local production. In short strategies for productive development and international insertion.

4. LAC exports growth is comparable to SEA. From 1990 X growth in LAC is the fastest Average annual growth rates of exports, 1980-2006 Source: WB

5. LAC: two-digit growth rates of exports after 1990, but imports are more dynamic Average annual growth rates, 1990-2008

6. And economic growth has not been as high as it was expected Fuente: CEPAL, los datos del PIB están en dólares constantes Average annual growth rates of GDP, 1990-2007

7. Xs are more dynamic than GDP…until mid 2000s: the end of X-led growth? Annual growth rate Note that trends are very influenced by Mexico´s trade performance.

8. Current situation and perspectives International crisis already affecting LAC international trade. Effects depend on macroeconomic strengths (fiscal, monetary, Xrate, foreign debt), trade patterns and modalities of insertion into the world economy: –Trade: goods, services, even labor. –FDI. –Integration; regional cooperation, open regionalism.

9. The exposure to trade varies in LAC Degree of openness (X/GDP) Source ECLAC. Exports includes only goods.

10. World trade will fall in 2009: the effect is not the same in LAC AMÉRICA LATINA Y EL CARIBE: Canasta de exportaciones de bienes, 2006 (En porcentajes) AMÉRICA LATINA Y EL CARIBE: Distribución geográfica de las exportaciones de manufacturas, 2006 (En porcentajes)

11. … the same at the country level… EXPORTACIONES DE BIENES SEGÚN DESTINO, 2006 En porcentajes del PIB EXPORTACIONES DE BIENES HACIA PAÍSES DESARROLLADOS, 2006 En porcentajes del PIB

12. Terms of trade will be less favourable in South America AMÉRICA LATINA (19): TÉRMINOS DE INTERCAMBIO, 2008-2009 En tasas de variación anual (Estimaciones para 2009)

13. Effects on exports performance will also depend on the diversification of markets (share of exports)

14. Fuente: CEPAL, sobre la base de cifras oficiales de los países. Los datos del Mercado Común Centroamericano excluyen las exportaciones de Maquila. Intra-regional trade as a means to face fall in global trade?

15. Intra-regional trade is more intensive in manufacturing than exports to the rest of the world (Exports structure, 2006) Source: ECLAC.

16. LAC also exports labor … and remittances are falling

17. Small economies are the most affected by fall in remittances AMÉRICA LATINA Y EL CARIBE: TRANSFERENCIAS CORRIENTES (CRÉDITO), 2007 En porcentajes del PIB y millones de dólares 24 423 millones

18. … some countries already show a sharp decline

19. Fall in tourism will be more severe for small economies in the Caribbean AMÉRICA LATINA Y EL CARIBE: EXPORTACIÓN DE SERVICIOS ASOCIADOS AL TURISMO, 2007 En porcentajes del PIB 40.8%

20. AMÉRICA LATINA Y EL CARIBE: INVERSIÓN EXTRANJERA DIRECTA NETA, 2008 En porcentajes del PIB FDI decline will also be more significant for small economies 21.8% 24.7%

21. Final remarks X-led growth did not produce expected results in terms of GDP growth. Lack of policies for strengthening linkages between X and domestic production, competitiveness, other productive development polices. Present slump in world trade is expected to last several years => LAC can no longer rely on a strategy based on X alone. A more balanced approach is needed…

22. Final remarks 2 Diversify markets and product mix. Intra-regional trade and other integration modalities. Domestic markets (medium and large economies). Innovation, competitiveness & productive development policies. Strengthening linkages between large and SMI.

23. Thank you jorge.mattar@cepal.org www.cepal.org